How Defense to Repayment Rule Changes Could Affect Your Student Loans

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A Department of Education loan forgiveness rule called borrower defense to repayment would seem to be an ideal solution. It’s a legitimate way to cancel your federal loans when you’ve been defrauded by your school, but unfortunately, the defense to repayment program has not worked very smoothly in recent years.

As of the start of 2021, as many as 170,000 students had filed borrower defense applications without receiving a response. For example, one borrower, Amy Kaplan, who attended the now-defunct Art Institute of California, told Student Loan Hero she “was advised it could be years” before she learned the fate of her borrower defense claim.

But borrowers received some good news in March, as the Education Department announced it would “streamline” the program’s approval process, delivering a combined $1 billion in loan cancellation to an estimated 72,000 borrowers — with more relief possibly on the way.

To get a clear picture of how the rule works, let’s answer the following:

What is the borrower defense to repayment rule?

Introduced in 2016 but then more recently roadblocked (more on that below), borrower defense to repayment wipes away the federal loan debt of student and parent PLUS Loan holders who borrowed for a school that misled them or violated state law.

The fraud must relate directly to the loan borrowed or the education that required federal aid in the first place. For instance, the rule would apply if a school used illegal or deceptive tactics in violation of state law to persuade students to borrow money for higher education. They might have made false promises or statements relating to:

  • Employment prospects
  • The cost of financing of the program
  • The educational and/or career services provided by the program
  • Whether credits could be transferred to other schools

Whether the school closed, as occurred in Kaplan’s case, is irrelevant, nor does it matter if you’re eligible for other types of loan discharge. (In fact, if your school did shutter, you could seek borrower defense and closed school discharge simultaneously.)

Timing is relevant, however. In enacting sweeping changes to the defense to repayment program in August 2019, then-Secretary of Education Betsy DeVos said students had to file their claims within three years of leaving school (not six, as under the original rules). According to Politico, that sticking point would have kept more than two-thirds of current borrower defense applicants from gaining approval.

DeVos’ now-defunct regulations stated that a borrower’s income would determine their level of relief. To receive full loan cancellation, a borrower must have earnings well below the median income level of graduates from comparable schools.

How borrower defense relief was awarded under the previous administration
Image: Ed.gov

The Department, now under the direction of Secretary Miguel Cardona, has since determined that approved applicants will receive a full discharge of their debt (not partial relief dependent upon their income). It added that borrowers who were previously approved for partial forgiveness will also be made whole.

“Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution’s misconduct,” Cardona said in the announcement. “A close review of these claims and the associated evidence showed these borrowers have been harmed, and we will grant them a fresh start from their debt.”

How do you make a borrower defense to repayment claim?

The Department of Education allows you to file your defense to repayment claim online at Studentaid.gov/borrower-defense. You could also complete and email the PDF application form, along with supporting documentation, to [email protected] or via postal mail to:

U.S. Department of Education – Borrower Defense to Repayment
P.O. Box 1854
Monticello, KY 42633

Supporting documentation could include enrollment records or transcripts that prove you attended the school in question. You might also provide any hard-copy correspondence you had with school officials, as well as any materials, such as a course catalog, that you received as a student.

Kaplan, for example, included links to media coverage detailing the shutdown of her school. She said she spent about 30 minutes completing her claim application.

Although borrowers currently have to wait for approval or denial on their defense to repayment applications, they at least have the option to postpone payments while their claim is under review. Borrowers can place their disputed loans in forbearance and halt collections. Unfortunately, the loans would continue to accrue interest, so if a borrower is rejected for borrower defense, they could return to repayment facing an even larger balance.

Kaplan said she elected to place her loans in forbearance to avoid the Department of Education garnishing her annual tax refund. “I was in default, and this helped to preserve my tax returns,” she said.

Unfortunately, having debt in collections is still her reality, possibly due to a logistical error on the part of the Education Department.

“I haven’t gotten any kind of contact in regards to my student loan other than a collection letter, which I shouldn’t be getting because my loan is supposed to be taken out of collections while they decide on my loan forgiveness application,” Kaplan told Student Loan Hero in June 2020.

What are some obstacles to borrower defense to repayment?

For its part, the Education Department told student loan lawyer Adam Minsky in April 2020 that it approved 7,888 defense to repayment claims between Dec. 1, 2019, and Feb. 29, 2020, only stopping due to ongoing litigation over the program.

When Kaplan asked about her application’s fate before December 2019, however, she was told no timeline could be provided.

In its March 18, 2021, announcement, the Department of Education said it would immediately make it easier for defrauded borrowers to receive relief. It said borrowers like Kaplan would receive “notices from the Department over the next several weeks with discharges following after that.”

Still, it’s worth looking back at the yo-yo act of borrower defense in recent years.

Obstacles to borrower defense to repayment program:
July 2017: 19 state attorneys general sued U.S. Secretary of Education Betsy DeVos after she announced she was delaying the implementation of the borrower defense program.
October 2017: DeVos planned to limit borrower defense forgiveness to partial (not full) awards to eligible students.
December 2017: The Office of Inspector General urged DeVos’ department to stop stalling the review of overdue claims.
January 2018: DeVos proposed that program applicants meet a higher burden of proof to qualify for borrower defense forgiveness — and do it within three years of leaving school, not six.
October 2018: A district court judge ruled that the Department of Education’s stalling was unconstitutional and that the program should resume.
June 2019: DeVos was the subject of a class-action lawsuit in California that called for the speedy review of the massive pile of unprocessed claims. Inside Higher Education also reported in May that some borrowers also were seeking forgiveness in court on an individual basis.
May 2020: In a potentially landmark settlement, the Education Department agreed to review the 170,000 pending borrower defense claims within 18 months. The class-action lawsuit brought by the Project on Predatory Student Lending wasn’t finalized by June 3, 2020. Still, it would also wipe away interest that accrued while the applications were in a holding pattern, yielding significant relief to borrowers like Kaplan.
March 2021: The Department of Education announced it would replace the DeVos-authored methodology when approving relief to program applicants.

How should you handle your defense to repayment claim?

If you’re in line to receive borrower defense to repayment forgiveness, you’d be excused for feeling both helpless and tired of waiting on the Education Department or the court system.

However, there are actionable steps you can take. If you think you meet the criteria for defense to repayment relief, gather your evidence and submit your application if you haven’t already.

If you’re not so sure about your eligibility, keep in mind that the Department of Education’s Federal Student Aid office maintains a borrower defense hotline during weekdays (8 a.m. to 8 p.m.) at 855-279-6207.

Also, investigate whether you’re a fit for other student loan forgiveness programs. You could seek direction from a student loan lawyer or student loan counselor, possibly on a pro bono basis or at low or no cost via a nonprofit organization.

Then — no matter the future of borrower defense to repayment rules — you’ll be in the best possible position to benefit.

Andrew Pentis contributed to this report.